On the Hook: Personal Liability for Trademark Infringement

Sometimes you're the windshield. Sometimes you're the bug.

-Mark Knopfler, Dire Straits

There are, of course, several mutations of that quote.  Sometimes you’re the hammer. Sometimes you’re the nail. Sometimes you’re the dog. Sometimes you’re the hydrant. Sometimes you’re the pigeon. Sometimes you’re the statue. (Side note: still so hard to write or say statue instead of statute.) You get the idea, but I’ll add one more to the mix. Sometimes you’re the trademark bully. Sometimes you’re the bullied.

To be clear, I am in no way supporting trademark bullying. Far be it from me to in any way condone something the USPTO has taken the time to denounce in a lengthy Report to Congress. But the trademark bullying referred to in that report (and generally) refers to situations in which trademark owners try to impermissibly exceed or expand the scope of their trademark rights through overreaching and unreasonable enforcement efforts. That’s not what this post is about.

This post is about leveraging an individual’s personal liability for a company’s trademark infringement. And man do I love suing individuals for trademark infringement when their company is using the infringing trademark. Is that normal?

The Rule on Personal Liability

In trademark cases, a corporate officer or director can be held personally liable for the trademark infringement committed by his or her company:

Moreover, “[a] corporate officer or director is, in general, personally liable for all torts which he authorizes or directs or in which he participates, notwithstanding that he acted as an agent of the corporation and not on his own behalf”. Transgo,  Inc., 768 F.2d at 1021 (internal quotation marks and citation omitted). While the particular act of unfair competition involved in that stage of Transgo was a conspiracy to pass off goods, the Fourth Circuit has recognized the applicability of the principle to trademark infringement generally. Polo Fashions, Inc. v. Craftex, Inc., 816 F.2d 145, 149 (4th Cir. 1987) (“A corporate official may be held personally liable for tortious conduct committed by him, though committed primarily for the benefit of the corporation. This is true in trademark infringement and unfair trade practices cases.”) (citing Transgo). See also Donsco, Inc. v. Casper Corp., 587 F.2d 602, 606 (3d Cir. 1978) (corporate president who authorized and approved corporation’s act of unfair competition liable under § 43(a); a corporate officer who knowingly and substantially participates in corporation’s act of infringement is personally liable); Electronic Laboratory Supply Co. v. Cullen, 977 F.2d 798, 807-808 (3d Cir. 1992).

The Committee for Idaho’s High Desert, Inc. v. Yost, 92 F.3d 814, 823-24 (9th Cir. 1996).

Normally, in order to hold an individual liable for the acts of a company, you have to pierce the corporate veil. But not under this rule—and therein lies the beauty. This rule of personal liability is separate and apart from piercing the corporate veil:

It is well-established that, in general, an individual corporate officer or director is not subject to personal liability simply by virtue of his office; such liability attaches only if the corporate veil can be pierced which appropriately occurs only in certain extraordinary circumstances. See Tillman v. Wheaton-Haven Recreation Association, Inc., 517 F.2d 1141, 1144 (4th Cir. 1974); Cheatle v. Rudd’s Swimming Pool Supply Co., 234 Va. 207, 360 S.E.2d 828, 831, 4 Va. Law Rep. 805 (1987) (holding that a refusal to recognize the corporate immunity for directors and officers constitutes an “extraordinary exception”). It is not alleged that such extraordinary circumstances exist here with respect to the individual defendants. Yet, this does not end the analysis of these individual defendants’ liability as it is equally well-established that an individual corporate officer or director can be held personally liable for trademark infringement. See Polo Fashions v. Craftex, 816 F.2d 145, 149 (4th Cir. 1987); Donsco, Inc. v. Casper Corp., 587 F.2d 602, 606 (3rd Cir. 1978); Committee for Idaho’s High Desert v. Yost, 92 F.3d 814, 823-24 (9th Cir. 1996), citing Polo Fashions, 816 F.2d at 149; McCarthy , § 25:24; see generally Tillman, 517 F.2d at 1144 (holding that a director who votes for the commission of a tort is personally liable, while a director who did not personally participate in the commission of the tort could not be held personally liable). Particularly instructive is the Third Circuit’s opinion in Donsco, where an officer who was a  “central figure” in the corporation was found personally liable for acts of trademark infringement that he had “authorized and approved.” Donsco, 587 F.2d at 606. The Third Circuit panel found persuasive the officer’s active and actual participation in the infringement, explaining that a corporate officer is “individually liable for the torts he personally commits, and cannot shield himself behind a corporation when he is an actual participant of the tort.” Id. In sum, it is clear that in such circumstances, the fact that an officer was an agent of the corporation, acting for its benefit, will not shield that officer from tort liability, but insteadmay only make the corporation secondarily liable. Id.

As the Third Circuit panel further explained, an officer’s personal tort liability as a participant in a tort is sharply distinguishable from any liability resulting from the piercing of the corporate veil; piercing the veil occurs where the corporation is a sham entity abused or used by the owner to commit wrongs whereas the defendants’ tort liability is predicated here on their alleged participation, viz, authorization and approval of a tort.

Stafford Urgent Care, Inc. v. Garrison Urgent Care, P.C., 224 F. Supp. 2d 1062, 1065-66 (E.D. Va. 2002);see also Chloe SAS v. Sawabeh Information Services Co., 2014 U.S. Dist. LEXIS 60188, *19-20 (C.D. Cal. Mar. 18, 2014) (“Personal liability for such infringement is appropriate  without regard to piercing the corporate veil.”); Kaswit, Inc. v. Dogfather K9 Connections, LLC, 2014 U.S. Dist. LEXIS 132157, *6 (N.D. Cal. Sep. 18, 2014).

As a result, if the company is found liable for trademark infringement and the individual is found to have authorized, directed, or participated in the infringement, the individual and company will be held jointly and severally liable for any resulting damages. Stanley Black & Decker, Inc. v. D&L Elite Investments, LLC, 2014 U.S. Dist. LEXIS 104202, *66- 67 (N.D. Cal. 2014).

Leveraging the Rule

OK—now that we know the general parameters of the personal liability rule, it’s time to drop the hammer. Although experienced trademark counsel are probably already aware of this well-established rule, I’ve found that there are still a lot of attorneys who are not aware of the rule—either due to a lack of experience or because they do not specialize in trademark law. And certainly the corporate officers, directors, owners, or members of the infringing companies are usually unaware of the rule—basking in their false sense of security they believe the formation of a corporation or limited liability company has provided them.

The personal liability rule can be helpful in a variety of circumstances. For example, I was litigating a trademark infringement case in which a very wealthy individual had formed a limited liability company that offered a directly competing app under a mark that was identical to my client’s mark. Priority and likelihood of confusion were clear. Yet, the infringing company was defiant—perhaps due to the limited  assets of the company. It was not until the individual was personally added to the lawsuit and made to appreciate his personal liability that settlement quickly ensued. It’s just different when you’re a named defendant and your personal assets are on the hook.

The Initial Cease and Desist Letter

In the past, my cease and desist letters didn’t address personal liability. I’d just add the individual to the lawsuit when I filed the complaint. However, I’ve recently changed my practice for a couple of reasons.

First, it may your only opportunity before litigation commences when you can directly communicate with the owner, officer, or director of the infringing company. And if you don’t get across the personal liability issue in the cease and desist letter, who knows if, when, or how the issue of personal liability will be communicated by opposing counsel.

Second, the cease and desist letter can itself be a way to hook an individual into personal liability for trademark infringement. For example, in Meth Lab Cleanup, LLC v. Bio Clean, Inc., the district court found that the individual defendant’s decision not to have the company cease its infringing company after receiving a cease and desist letter sufficient to state a claim for personal liability:

It is plausible to conclude, based on the allegation that Ms. Borst is Bio Clean’s “sole owner” and “moving force” that she authorized, directed, or participated in the actions of Bio Clean that MLC contends violated the Lanham Act. That conclusion is strengthened when the court considers the allegation that MLC sent two cease-and-desist letters to Ms. Borst as Bio-Clean’s president. Compl. ¶ 39 & Ex. E (Jul. 24, 2013 letter); Compl. ¶ 41 & Ex. G (Feb. 20, 2014 letter). It is plausible to conclude that Ms. Borst received those letters, was aware of Bio Clean’s allegedly unlawful activity, and either explicitly authorized Bio Clean to continue that activity, or implicitly authorized it by doing nothing.

Meth Lab Cleanup, LLC v. Bio Clean, Inc., 2015 U.S. Dist. LEXIS 5144, *4-5 (W.D. Wash. 2015). You could even reference the Meth Lab case in the cease and desist letter.

The Complaint

If you know the individual who is a sole owner, corporate officer, director, or moving force behind a company and who has authorized, directed, or participated in the company’s infringing trademark activities, then name him or her as a defendant from the outset. Just make sure you include sufficient supporting factual allegations.

Whether you’ve named one or more individuals as defendants from the outset, make sure you’ve also listed DOE defendants. That way if you uncover any additional individuals who authorized, directed, or participated in the infringement, you can add them as defendants. The rule of personal liability is not limited to a single individual.

Discovery

Serve discovery directed to uncovering all individuals who may have personal liability for the company’s trademark infringement. And serve it right away. You’ll want to add them as defendants as soon as possible and before the last day to amend the pleadings. The more people on the hook, the more leverage you have.

Wrap-Up

The rule of personal liability is a powerful weapon in your arsenal. It can have a dramatic impact in trademark enforcement efforts and in trademark litigation. It can create the tipping point that results in compliance or settlement. It’s worth spending some time brainstorming how to leverage the rule to your advantage. Likewise, consider any disadvantages—for example, could the defendant counterclaim and use the rule against your own client? Assuming the advantages outweigh the disadvantages (which I’ve usually found to be the case), it’s time to play with your new toy.